Since mid-March 2020, employers have been wondering what options there are for their employees in the face of the COVID-19 pandemic. Here are answers to employers’ most frequently asked questions with regards to wage subsidies, SUB Plan and Work-Sharing.
Here’s a quick glance at the questions we answer in more detail below:
1. What are the federal wage subsidies for businesses during COVID-19?
2. How do federal subsidies and other government programs interact?
3. More details about the Canada Emergency Wage Subsidy (CEWS)
- When and how to apply for CEWS?
- Who is eligible for the CEWS?
- What are the eligibility conditions for the CEWS and what is the revenue test?
- How is the CEW calculated?
- For which periods can the CEWS be claimed?
- How and when should my business apply for the CEWS?
- Will payroll contributions be refunded for those eligible for the CEWS?
- Is the CEWS taxable to the employer?
- Does the employer have to top-up employees to pre-crisis salary levels?
- What are the specific rules regarding compliance and enforcement?
4. More details about the Temporary Wage Subsidy (TWS)
- Who are the eligible employers for the TWS?
- How much is the TWS?
5. If I have laid off my staff, is there anything I can do to help them during their unemployment? Find out more about Supplemental Unemployment Benefit (SUB).
6. My business activity has been reduced due to the COVID-19 pandemic but I do not want to lay off my employees, is there anything I can do? Find out more about Work-Sharing.
7. How can I make up my mind about going with SUB Plan or Work-Sharing?
8. Due to the pandemic, business is slow yet I still need liquidity to keep it running, what should I do?
- Canada Emergency Business Account – Up to $40,000 Line of Credit
- Small & Medium-Sized Enterprise (SME) Loan & Guarantee Program – Up to $6,250,000 Loan per SME
9. May I lay off my employees temporarily, and are there any risks associated with that?
10. May I terminate my employees as I am shutting down my business completely due to the pandemic and would that expose me to any wrongful dismissal risk?
1. What are the federal wage subsidies?
There are two potential wage subsidies available to businesses affected by COVID-19. One, the 10% Wage Subsidy or the Temporary Wage Subsidy (the TWS) became law on March 25, 2020 and is available to reduce payroll remittances as of March 18, 2020. The other one, the Canada Emergency Wage Subsidy is a 75% wage subsidy (the CEWS), retroactive to March 15, 2020, and has become law on April 11, 2020. The news release accompanying the CEWS legislation summarizes the Government’s initiatives to support the help businesses keep Canadians in their jobs.
On July 27, 2020, Bill C-20 came into effect that, among other things, extended CEWS to November 21, 2020, with the ability to extend it further to no later than December 31, 2020.
NEW: As of November 2020, the CEWS has been extended to June 2021, including changes to the rates and top-up calculation.
The CEWS followed the realization that the 10% COVID wage subsidy may be insufficient to help companies keep their employees on payroll. In only two weeks since it was announced on March 27, 2020, the CEWS was passed by Parliament and received royal assent. Its purpose is to allow employers to avoid layoffs and terminations and to bring employees who are already laid off back on payroll.
2. How do federal subsidies and other government programs interact?
The Government of Canada stated that for employers that are eligible for both the CEWS and the TWS for a period, any benefit from the TWS for remuneration paid in a specific period would generally reduce the amount available to be claimed under the CEWS in that same period.
In the same vein, any Employment Insurance (EI) benefits received by employees through the Work-Sharing program will reduce the benefit that their employer is entitled to receive under the CEWS.
3. The Canada Emergency Wage Subsidy (CEWS)
Below is a summary of the rules regarding the CEWS. The CEWS will be generally available to all “eligible employers” and will amount to 75% of the total “eligible remuneration” paid during the “eligible period.” The CEWS program will be in place from March 15, with a retroactive effect. On May 15, 2020, the government announced that the CEWS will be extended to August 29, 2020 (this announcement extends the initial CEWS period which was supposed to end on June 6).
On April 23, 2020, the CRA published a comprehensive set of answers to frequently asked questions concerning the CEWS.
i. When and how to apply for CEWS?
The applications for CEWS opened April 27, 2020.
- Most businesses may apply using My Business Account
- If you represent a business, you may apply using Represent a Client
- Alternatively, you may apply using a separate online application form (available April 27)
The CEWS will be processed at the payroll program (RP) account level, so you will have to file a separate application for each RP account. For more details on how to prepare your application visit the government’s CEWS webpage.
ii. Who is eligible for the CEWS?
Employers of all sizes and across all sectors qualify, except public bodies are eligible for the CEWS. It is available to any businesses, small or large (including individuals and partnerships), charities and non-profit organizations, unions with the exception of public sector organizations.
This definition of the employers eligible for the CEWS is broader than the one for the Temporary Wage Subsidy (TWS), discussed below.
iii. What are the eligibility conditions for the CEWS and what is the revenue test?
To qualify for the subsidy, the employers, referred to as eligible entities must see a decline in revenues. Employers can use one of two benchmarks for the revenue test. They can choose to compare their revenue of March, April, and May 2020 to either:
- The same months in 2019; or
- An average of their revenue in January and February of 2020.
With the changes implemented by Bill C-20, the government broadened the range of employers who may be eligible to include businesses that have at least 50% of the partnership who meet the definition of “eligible entity”.
To be eligible for the CEWS, the employer must have experienced a decline in gross revenue from arm’s-length sources in the course of its activities in Canada of 15% or more in March 2020 or 30% or more in April or May 2020, as compared to either the same month in 2019 or to an average of its monthly gross revenue earned in January and February 2020. Non-profit organizations are allowed to choose to exclude government support in calculating the revenue decrease.
Bill C-20 has implemented new regulations that have eliminated the requirement to have a certain percentage of decreased revenue. Under Bill C-20, the government has made the subsidy more accessible by providing a gradually decreasing base subsidy to all eligible employers that are experiencing a decline in revenues, regardless of the percentage.
iv. How is the CEWS calculated?
The subsidy is calculated on a per-employee basis. The subsidy covers eligible employees. An eligible employee is generally an individual employed in Canada. Employees who are without remuneration for a two-week period during the claiming period are excluded.
For “regular” employees, the CEWS covers the greater of:
- 75% of the amount of eligible remuneration paid, up to a maximum benefit of $847 per week; and
- the least of the amount of remuneration paid, up to a maximum benefit of $847 per week, or 75% of the employee’s pre-crisis weekly remuneration (the baseline remuneration).
The CEWS will be available for new “regular” employees hired after March 15, 2020.
Provisions under Bill C-20 replace the 75% subsidy with a base amount of subsidy, regardless of the revenue decline a business incurs. It also ensures that no business that previously qualified for CEWS will receive a lesser rate than they were previously receiving.
For employees that do not deal at arm’s length with the employer, such as payments by a professional corporation to its controlling shareholder, the subsidy amount for such employees will be limited to the eligible remuneration paid in that week, up to a maximum benefit of $847 per week or 75 percent of the employee’s pre-crisis weekly remuneration. The CEWS will not be available to non-arm’s length employees hired after March 15, 2020.
- Eligible remuneration includes salary, wages and other remuneration like taxable benefits paid to an eligible employee. It does not include items like severance pay or stock options benefits. How irregular payments, such as bonuses or commissions, will be adjusted for is still unclear.
- Baseline remuneration is the average weekly remuneration paid to the employee between January 1 and March 15, excluding any seven-day periods for which the employee was not paid.
On May 15, 2020, the government announced that it will consult with key business and labour representatives over the next month on potential adjustments to the program to incent jobs and growth, including the 30%revenue decline threshold. Any potential changes following the consultation will have as key objectives to maximize employment, ensure the CEWS reflects the immediate needs of businesses, and support the post-crisis economic recovery.
v. For which periods can the CEWS be claimed?
The program will be in place from March 15 to August 29, 2020. The Department of Finance posted the table below clarifying the claiming and reference periods.
| Claiming period & Revenue Reduction | Reference period for eligibility | |
| Period 1 | March 15 – April 11
15% |
March 2020 over:
|
| Period 2 | April 12 – May 9
30% |
April 2020 over:
|
| Period 3 | May 10 – June 6
30% |
May 2020 over:
|
| Period 4 | June 7 – July 4
30% |
June 2020 over:
|
| Period 5 | July 5 – August 1 | An employer may be eligible if they incurred a loss in revenue under Bill C-20 |
| Period 6 | August 2 – August 29 | An employer may be eligible if they incurred a loss in revenue under Bill C-20 |
| Period 7 | August 30 – September 26 | An employer may be eligible if they incurred a loss in revenue under Bill C-20 |
| Period 8 | September 27 – October 24 | An employer may be eligible if they incurred a loss in revenue under Bill C-20 |
| Period 9 | October 25 – November 21 | An employer may be eligible if they incurred a loss in revenue under Bill C-20 |
The Government announced on May 15, 2020 that the CEWS would be extended by an additional 12 weeks, to August 29, 2020. The eligibility criteria will apply for the current period (period 4). Any potential changes would commence as of periods 5 (July 5 to August 1) and/or 6 (August 2 to August 29).
On July 27, Bill C-20 received royal assent, extending the period to November 21, 2020.
NEW: The CEWS has now been extended to June 2021. Also, starting in period 9, the calculation for employees on leave now better aligns with EI benefits.
vi. How and when should my business apply for the CEWS?
Application for the benefit must be done before October 2020 through the Canada Revenue Agency Portal. Eligible employers will be able to apply for the CEWS through the Canada Revenue Agency’s My Business Account portal as well as a web-based application. Employers would have to keep records demonstrating their reduction in arm’s-length revenues and remuneration paid to employees.
To provide greater certainty and simplicity to employers, once an employer is found to be eligible for a specific period, the employer will automatically qualify for the next period. This will also allow the entity to recover during the next period without losing the subsidy.
vii. Will payroll contributions be refunded for those eligible for the CEWS?
Certain contributions paid to Employment Insurance, the Canada Pension Plan, the Quebec Pension Plan and the Quebec Parental Insurance Plan for employees who are on paid leave will be refundable to employers eligible for the CEWS.
Employers should continue to collect and remit employer and employee contributions to each program as usual and apply for the refund when they apply for the CEWS.
viii. Is the CEWS taxable to the employer?
Yes, the CEWS will the taxable to the employer because it is government assistance. On a positive note, there is no cap on the amount of CEWS an employer can claim.
ix. Does the employer have to top-up employees to pre-crisis salary levels?
The government has asked employers to do their best to top up employee’s salaries and bring them to pre-crisis wage levels. No guidance has been provided at this time on how the government will measure best efforts or what the consequences would be for those who don’t make them. Bill C-20 added a 25% top-up subsidy for employers who have been more adversely affected by the COVID-19 pandemic.
x. What are the specific rules regarding compliance and enforcement?
The individual who has principal responsibility for the financial activities of the eligible employer must attest that the application is complete and accurate in all material respects. Penalties for fraudulent claims are severe and will include fines and possible imprisonment. Artificial transactions to reduce revenue for the purpose of claiming the CEWS would be subject to a penalty equal to 25 percent of the value of the subsidy claimed, in addition to the requirement to repay the full subsidy that was inappropriately claimed. The legislation also includes anti-avoidance rules that prevent manipulation of the CEWS computation.
The legislation allows for the Minister of National Revenue to publicly communicate the names of any employer who applies for the CEWS.
NEW: Other changes to the CEWS as of November 2020:
– The maximum subsidy rate for periods 8 to 10 will remain at 65% (40% base rate + 25% top-up).
– Beginning in period 8, the top-up rate and base rate are now calculated based on the same one-month revenue drop.
– The deadline to apply is January 31, 2021, or 180 days after the end of the claim period, whichever comes later.
– The Canada Emergency Rent Subsidy (CERS) has been introduced for businesses, non-profits, and charities.
4. The Temporary Wage Subsidy (TWS)
The TWS was a three-month measure available for eligible employers and it was applied to reduce payroll remittances as of March 18, 2020 to June 19, 2020.
i. Who are the eligible employers for the TWS?
Non-profit organizations, charities and Canadian-controlled private corporations (CCPC) are eligible for the subsidy. Self-employed individuals are not legally employees and are therefore excluded from the wage subsidy.
Bill C-13 specifically includes partnerships in its definition of eligible employers. An employee of a sole proprietor should also be eligible. Sole proprietor refers to the form of ownership. Unincorporated sole proprietor businesses can still have employees besides the owner.
The CRA has clarified that CCPCs are only eligible for the subsidy if their taxable capital for the preceding tax year, calculated on an associated group basis, is less than $15 million. A corporation’s taxable capital is, in general, the total of its shareholder’s equity and loans and advances to the corporation less investments in other corporations.
ii. How much is the TWS?
The subsidy is equal to 10% of the remuneration you pay between March 18, 2020, and June 19, 2020, up to $1,375 per employee and to a maximum of $25,000 total per employer. For example, if you have 5 employees, the maximum subsidy you can receive is $6,875 ($1,375 x 5 employees), even though the per employer maximum is $25,000.
Employers can reduce remittances for payroll paid between March 18, 2020 and June 19, 2020. As a result, most employers will see the benefit when remitting March withholdings on April 15, 2020. The subsidy can only be applied against income tax withholdings that are to be remitted. An employer cannot reduce remittances of Canada Pension Plan contributions or Employment Insurance premiums.
On a positive note, associated CCPCs will not be required to share the maximum subsidy of $25,000 per employer.
5. If I have laid off my staff, is there anything I can do to help them during their unemployment – Supplemental Unemployment Benefit (SUB) Plan?
This program allows employers to register Supplemental Unemployment Benefit (SUB) plans, with the CRA, that meet the requirements of subsection 37(2) of the Employment Insurance Regulations. Generally, applications for SUB plans should be made 30 days in advance of the plan’s start date. However, due to the COVID-19 pandemic plans may be approved sooner.
A SUB plan is a plan that:
- identifies the group of employees covered and the duration of the plan
- covers a period of unemployment caused by 1 or a combination of the following:
- temporary stoppage of work,
- training, or
- illness, injury or quarantine.
- requires employees to apply for and be in receipt of EI benefits to receive payments under the plan;
- requires that the combined weekly payments from the plan and the portion of the EI weekly benefit rate does not exceed 95% of the employee’s normal weekly earnings;
- requires it be entirely financed by the employer;
- requires that on termination, all remaining assets of the plan will be reverted to the employer or be used for payments under the plan or for its administrative costs;
- requires that written notice of any change to the plan be given to Service Canada within 30 days after the effective date of the change;
- provides that the employees have no vested right to payments under the plan except during a period of unemployment specified in the plan;
- provides that payments in respect of guaranteed annual remuneration, deferred remuneration or severance pay will not be reduced or increased by payments received under the plan.
The Government has posted a sample plan for guidance and the plan registration form can be found here.
6. My business activity has been reduced due to the COVID-19 pandemic but I do not want to lay off my employees, is there anything I can do?
Yes, you can apply for Work-Sharing.
Work-Sharing is designed to help employers and employees avoid layoffs when there is a temporary reduction in the normal level of business activity that is beyond the control of the employer. The measure provides income support to employees eligible for Employment Insurance benefits who work a temporarily reduced work week while their employer recovers.
Work-Sharing is a three-party agreement involving employers, employees and Service Canada. Employees on a Work-Sharing agreement must agree to a reduced schedule of work and to share the available work over a specified period of time.
To be eligible for this benefit, employers must:
- Have been in business in Canada for at least two (2) completed years;
- Be a private business, a publicly-held company, or a not-for-profit organization;
- Demonstrate that the shortage of work is temporary, and is out of their control, and is it is not a cyclical or recurring slowdown;
- Demonstrate a recent decrease in business activity of approximately 10%; and
- Submit an implement a recovery plan designed to return to normal working hours.
Employers applying for the Work-Sharing program must complete:
- Application for a Work-Sharing Agreement
- A list of all the employees participating in the Work-Sharing plan, the list is referred to as Attachment A (available in PDF and Excel format). The employer and all non-unionized employees must sign Attachment A. For unionized employees, the union representative must sign the document, together with the employer.
- Recovery plan template. The recovery plan should reflect the particular circumstances of the business, the cause of the work shortage and the conditions of the community/industry in which the employer operates and it should demonstrate that the employer will implement activities during the period of the Work-Sharing agreement to alleviate the work shortage in order to return to normal work conditions.
- Ontario based businesses should send their applications to
7. How can I make up my mind about going with SUB Plan or Work-Sharing?
To facilitate the decision making process for you, Monkhouse Law has prepared a COVID Lay Off Alternatives: Comparison table for SUB and Work-Sharing. You can also check our detailed article Government Support for Employees during the COVID-19 Pandemic: Employment Insurance, Temporary and Long Term Support.
8. Due to the pandemic, business is slow yet I still need liquidity to keep it running, what should I do?
i. Canada Emergency Business Account – UP TO $40,000 LINE OF CREDIT
The Prime Minister announced the launch of the new Canada Emergency Business Account (CEBA). This program will provide up to $25 billion to eligible financial institutions so they can provide interest-free loans – guaranteed and funded by the Government – to small businesses. The loans will be up to $40,000 and will be provided to small businesses and not-for-profits, to help cover their operating costs during a period where their revenues have been temporarily reduced.
After comments from the business community, the CEBA was extended to help more small businesses on April 16, 2020. The government’s website states that the organizations will need to demonstrate they paid between $20,000 to $1,5 million in total employment income in 2019 to qualify for the program. This program will roll out in mid-April, and businesses will have access to it through their current financial institutions and not through a governmental agency.
On May 19, 2020, Prime Minister Justin Trudeau announced the expansion of CEBA to business and sole proprietors with payroll lower than $20,000. The program will now be available to a greater number of businesses that are sole proprietors receiving income directly from their businesses, businesses that rely on contractors, and family-owned corporations that pay employees through dividends rather than payroll.
To qualify for the expanded CEBA, the businesses with payrolls under $20,000 would need:
- a business operating account at a participating financial institution
- a CRA business number, and to have filed a 2018 or 2019 tax return.
- eligible non-deferrable expenses between $40,000 and $1.5 million. Eligible non-deferrable expenses could include costs such as rent, property taxes, utilities, and insurance.
According to major financial institutions websites (e.g. CIBC, TD and RBC) “If you pay 75% of the balance of the term loan (as at January 1, 2021), on or before December 31, 2022, the remaining balance of your term loan will be forgiven. For example, if your balance is $40,000 on January 1, 2021, and you repay $30,000 on or before December 31, 2022, the remaining $10,000 will be forgiven.”
ii. SMALL & MEDIUM-SIZED ENTERPRISE (SME) LOAN & GUARANTEE PROGRAM – UP TO $6,250,000 LOAN PER SME
To provide additional liquidity support for Canadian businesses, the Government announced a Co-Lending Program will bring the Business Development Bank of Canada (BDC) together with financial institutions to co-lend term loans to SMEs for their operational cash flow requirements.
Eligible businesses may obtain incremental credit amounts up to $6.25 million. BDC’s portion of this program is up to $5 million maximum per loan. The loans will be backstopped by BDC and Export and Development Canada (EDC). Eligible financial institutions will conduct underwriting and manage the interface with their customers and more details will be available from those institutions.
9. May I lay off my employees temporarily, and are there any risks associated with that?
On July 24, 2020, the Ontario Government ended the declaration of emergency to the COVID-19 pandemic. This means that the provisions of O. Reg. 228/20, that allowed employers to convert layoffs into job-protected unpaid Infectious Disease Emergency Leaves will end six weeks after, on September 4, 2020. O.Reg. 228/20 has now been replaced with the Reopening Ontario (A Flexible Response to COVID-19) Act.
Read our full analysis of the implications of the end of the state of emergency at Ontario’s Declaration of Emergency Ends.
Following Septemeber 4, 2020, employees will have to be recalled to their pre COVID-19 position, or a comparable position on the same terms and rate of pay by September 4, 2020. Up to September 4, 2020, employees will continue to be on unpaid job-protected Infectious Disease Emergency Leave if:
- have had their hours reduced or eliminated for reasons related the COVID-19 pandemic; or
- are not performing the duties of her position as a result.
NEW: For federally regulated employers, temporary lay offs can extend until January 2, 2022.
- For those laid off before March 31 2020: by 9 months after the day on which it would otherwise end, therefore, an employer would have up to 12 months to recall the employee before the lay-off is deemed to be a termination of employment;
- For those laid off between March 31 and January 2, 2022: An employer has until January 2, 2022 to recall their employee before the lay-off is deemed to be a termination of employment.
The extended layoff period does not apply for layoffs after January 2, 2022.
10. May I terminate my employees as I am shutting down my business completely due to the pandemic and would that expose me to any wrongful dismissal risk?
Generally, when employees are terminated, they are owed at least minimum termination and severance pay under Ontario legislation or common law notice, in the absence of a contract limiting their entitlements. It has yet to be determined whether the employer could claim that the COVID-19 pandemic frustrates employment contracts and that employees are not entitled to any damages upon termination. However, the case law prior to the pandemic suggests that such arguments would be difficult to make.
Monkhouse Law is an employment law firm assisting employers during the COVID-19 pandemic. We find solutions to workplace challenges and ways to keep your employees. We are also a small business, so we understand the challenges you are facing at this time.
Call us for a FREE 30 minute phone consultation at 416-907-9249 or submit a callback request
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